Citron Research Reports on China Media Express (Nasdaq:CCME)
The China Reverse Merger stock that is “Too Good to be True”
Every investor protection website, from the SEC on down, posts this advice for investors: “If it sounds too good to be true, it is…” Looking back on major frauds like Bernie Madoff, the most common expression of regret from duped investors is framed just this way. Yet the “too good to be true” story is always tempting — especially so for those who haven’t been burned yet.
China Media Express (NASDAQ:CCME) operates a very simple business. They claim to be the largest television advertising operator on inter-city buses and airport express buses in China.
Does anyone know how to use Google or Baidu??
CCME — The Phantom Company
The clearest example of the “phantom” CCME is an 87 page report prepared by Analysis International on the Chinese Outdoor LCD Screen Market for the year 2010. Every major real player in the space is mentioned…not just the top three, but the top ten! And guess who is missing? CCME is not mentioned anywhere in the doc.
Just One Example of the Numbers that Don’t Make Sense
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How can CCME generate three and a half times the revenue per screen of its competitors? CCME has roughly 55-60K displays; VISN has appx 120,000 screens. In Q2, 2010. VISN’s total revenue was $31 million and CCME generated $53 million from less than half the screens. Remember that VISN operates bus advertising in major metropolitan areas, compared to CCME, which claims inter-city buses between 2nd and 3rd tier markets. That is what the company wants investors to believe.
The Cover-up
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The company’s attempted to add some clarity to their story at its recent investor day. Out of all the people who could have spoken positively about the company, they chose a representative from Shanghai Apollo Culture Corp. 上海阿波罗文化艺术公司, 张旭东. Here is the video. http://www.youtube.com/watch?v=tli7AI2r9Io. In reality Apollo is nothing more than a 2 person shop that can barely pay their bills and had annual revenue of $330K RMB (yes $60K US Dollars), as stated in this article below.
Debunking The “Alleged” Government Deal.
No Substantial Analyst Coverage
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It appears that CCME might be a darling for college kids and bloggers (retail), but the analysts know better. Ask yourself this question: How could the fastest growing advertising company in all of China, with industry leading margins and profit, not even get a proper analyst to believe this crazy story?
The two analysts who cover CCME are Global Hunter and Northland. Global Hunter, a small new firm, has been a long time banker of Chinese RTOs and even had a $20 target on RINO. http://www.streetinsider.com/New+Coverage/Global+Hunter+Starts+RINO+International+(RINO)+at+Buy/5998411.html.
As for Northland Securities, as a professional courtesy, the editor of Citron phoned analyst Darren Aftahi yesterday, to see if they knew something Citron didn’t. After a nice conversation, Darren admitted the possibility that China Media could be a fraud. Furthermore, Citron believes that Northland and its analyst have become mere cheerleaders for the stock, as this morning they recommended their clients “buy on weakness” without considering the doubts of their own analyst or having the benefit of all available information. It is Citron’s opinion that urging clients to buy without considering important concerns just now surfacing is like encouraging people to drink the Kool Aid without finding out first what’s in it.